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Corporate venture - still hanging in there
So all of your friends have told you that
venture capital has dried up. What is a
startup or even growth company to do?
Meet the corporate venture investors.
Corporate venture units invested $7.8
Billion in startups last year, more than
five times as much as the $1.4 billion invested
in 1998. According to the National Venture
Capital Association, in the first quarter,
corporate investment grew to 18.7 percent
of the total invested.
Sun doubled its venture fund to $400 Million.
Nokia set aside $500 Million. Oracle
started with $100 million for its venture
fund, and last year added another $400
million.
Why are corporate venture groups increasing
their investments while new investments from
traditional venture firms are dwindling ?
So why is corporate venture growing ?
1) Strategic. Corporate venture groups
are funding their next customers. The
thought process is that these budding
companies will not only utilize the
corporations products and technology, but
will also be strong promoters.
2) Less capital for follow on rounds.
The average venture fund and its partners
are strained with not only capital, but also
time dealing with the woes of their struggling
portfolio companies. As long as this continues,
companies seeking follow on rounds of capital
in many cases will have to look elsewhere and
they are going to the corporate venture units.
3) Return on Investment. Not all corporate
venture units are investing for technology
advantages and to build new customers. Oracle
for example, invested $3 Million into Chipshot.com.
What possible technology advantage could come
from a golf equipment retailer ? None, look
at Apple's pre-IPO investment in Akamia being
worth $1.3 Billion at the end of 1999.
Analysts are now counting these returns as
part of the company's earnings, instead
of as a one-time pop.
4) Getting Attention. So how can you get
the attention of corporate venture capitalists ?
For follow on rounds your early investors may
bring you to their door. As a startup you need
to work harder. Going through your local sales
rep or account executive is a good start,
but the key is to get in the door with
their business development or strategic
alliance group. Many times, new deals are
brought to the partners of corporate venture
units through the business development groups.
We believe that corporate venture investing
will continue to grow, as more corporations
realize the opportunity for not only new
customer sales but also profit. As long as
struggling portfolio companies are eating up
traditional venture capital and its partner's
time, they will turn even more to corporate
venture units.
Next time: Valuing your business today
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